U.K.'s economic output slows in fourth quarter

AlexBrittain

LONDON--Britain's economic recovery ebbed in the final three months of 2013, a slight slowdown that could strengthen policy makers' resolve to keep stimulus flowing to encourage further growth.

The Office for National Statistics said Tuesday output in the economy grew 0.7% between October and December, down from a 0.8% expansion rate in the two previous quarters.

Growth in annualized terms in the fourth quarter was 2.8%.

A fall in construction output in November was largely to blame for the slowdown, the statistics office said, estimating output in that sector fell by 0.3% during the quarter overall. Other sectors of the economy grew steadily.

The ONS didn't make any estimate for the likely impact of flooding that hit parts of the U.K. at the end of December.

Sterling fell against both the dollar and the euro in the minutes after the data were released, before recovering. Prices of U.K. government bonds edged lower.

The data matched economists' forecasts in a Wall Street Journal poll.

Growth is widely expected to accelerate in 2014. The International Monetary Fund earlier this month predicted growth of 2.4% over the year.

The economy grew 1.9% in 2013 as a whole, its fastest rate of growth since 2007 and likely one of the best performances among developed nations. Other countries have yet to release growth figures for the year.

The economy began a strong recovery at the start of 2013 after sputtering since 2010, when the coalition government took power with a policy of fiscal consolidation meant to address the huge debts the U.K. had racked up, partly as a consequence of the financial crisis.

George Osborne, the U.K.'s finance chief, welcomed the ONS figures but said the government cannot back away from its plan to curb benefits and other forms of government spending, while cutting taxes for businesses.

"It is more evidence that our long-term economic plan is working," Mr. Osborne said in a statement. "But the job is not done, and it is clear that the biggest risk now to the recovery would be abandoning the plan that's delivering jobs and a brighter economic future."

Britons will go to the polls in the spring of 2015. The opposition Labour Party says policy should change to help boost workers' incomes.

"We have now seen four successive quarters of significant growth and the economy does seem to be improving more consistently," Joe Grice, the statistics office's chief economic adviser, said of Tuesday's data.

U.K. economic output has yet to recover fully from a steep recession in 2009, however, remaining 1.3% below the precrisis peak.

The fourth-quarter growth rate failed to match Bank of England officials' predictions for the economy to accelerate further during the period.

That fact is likely to underpin policy makers' commitment to keep monetary policy loose, despite the recovery seen to date and widespread predictions of further growth.

Officials on the BOE's Monetary Policy Committee have said they won't consider tightening policy even after the U.K.'s unemployment rate falls below a 7% threshold they established in the summer.

The jobless rate fell to 7.1% in the three months through November, the latest figures show.

The fourth-quarter growth disappointment "may help to quell murmurs of some support among committee members for an interest-rate rise sooner rather than later," said Martin Beck, economist at Capital Economics, a consultancy.

Still, conditions are in place for stronger growth in gross domestic product next year, he said. "With rising real incomes set to provide stronger support for household spending and investment set to pick up, we expect GDP to expand by a healthy 3% in 2014."

Write to Alex Brittain at alex.brittain@wsj.com and Jason Douglas at jason.douglas@wsj.com

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